KPMG Law Ukraine Gateway

Consulting focus

• Market entry - business registration

  Ukraine has introduced a number of legislative changes aimed at simplifying the establishment and operation of a company:

  • Online access to the unified state register for legal entities, individual entrepreneurs and non-governmental organizations (USR)
  • Abolition of the annual obligation to confirm data on a legal entity
  • Simplification of liquidation and restructuring procedures
  • the licensing of notaries to perform the duties of registrars
  • Acceleration of the registration process if a complete set of documents is submitted
  • Enabling the exercise of economic activities by successors of legal entities that have ceased to exist due to merger, accession or change of legal form on the basis of the license issued to the ceased legal entity for a transitional period of up to six months or until a new license is obtained.

  The need for mandatory licensing or other approval by state authorities has been abolished in many industries and replaced by a system of silent consent and declarations (i.e. a company can conduct certain types of business if it makes a corresponding declaration to the Ukrainian state authorities).

  In accordance with the CMU resolution “On the suspension of state surveillance (control) measures under martial law” of March 13, 2022, planned and unplanned state surveillance (control) measures were suspended during the period of martial law.

  However, such activities are permitted if:

  • there is a danger to the life or health of people,
  • it is necessary for environmental protection,
  • it is necessary to ensure national security.

  In addition, some authorized bodies such as the State Tax Service, the National Commission for State Regulation of Energy and Utilities, the National Council for Television and Radio Broadcasting and the State Service of Ukraine for Food Safety and Consumer Protection are allowed to carry out inspections during martial law.

   

• Market entry strategies

  Foreign investors have the following options when entering the Ukrainian market:

  • Direct sales
  • Brokerage and commission agreements
  • Joint venture with a Ukrainian partner
  • Registration of the representative office (commercial and non-commercial)
  • Registration of a Ukrainian subsidiary.

  The decision of foreign investors usually depends on their business strategy, the start-up and maintenance costs as well as the associated legal and tax risks.

  1.1.1 Direct sales

  The easiest way to enter the Ukrainian market is to conclude direct sales contracts with Ukrainian customers. Under these circumstances, a foreign legal entity selling goods or services directly from abroad to customers (or distributors) in Ukraine is not subject to Ukrainian income tax, unless the activities of such a foreign legal entity create the appearance of a permanent establishment in Ukraine. Depending on the agreed terms of delivery, Ukrainian customers (or distributors) would be responsible for customs clearance and may have to pay customs duties and taxes (VAT, excise duties, etc.).

  A properly drafted cross-border agreement allows a foreign company to avoid taxation in Ukraine.

  Direct sales contracts are the easiest way to trade with Ukrainian companies.

  By choosing the law that applies to you or the law of a recognized international jurisdiction that governs the contract, direct selling becomes a viable option for businesses. However, if you choose this option, you must comply with the mandatory provisions of Ukrainian laws (e.g. foreign exchange control regulations, land regulations, licensing and permit requirements, etc.).

   

  1.1.2 Agency and commission agreements

  Agency and commission agreements are another convenient alternative for structuring a business activity in Ukraine. From a legal perspective, such agreements allow a foreign company to engage in commercial activities in Ukraine without establishing a legal entity and bearing the associated costs and risks associated with employing staff or complying with local accounting and bookkeeping regulations. Agency and commission contracts may trigger taxation in Ukraine, especially if an agent acts exclusively on behalf of a particular foreign company and the provision of agency or commission services is not part of its core business (as may be the case with securities and insurance brokers, etc.).

  When applying agency and commission contracts for activities of a preparatory or supportive nature (such as market research and analysis) that do not establish a permanent establishment of a foreign company in Ukraine, profits would be taxed only in the country of tax residence.

   

  1.1.3 Joint venture with a Ukrainian partner

  Ukrainian laws give a foreign investor the right to enter into a joint venture with a Ukrainian partner (formally referred to as a “joint activity agreement”, which may take the form of a simple partnership agreement, a production sharing agreement (PSA) or a cooperation agreement with one or more Ukrainian partners). Investments of this type may be subject to state guarantees and should be registered with the relevant local state authorities in Ukraine.

  It is common practice to establish a joint venture as a legal entity under Ukrainian law, usually in the form of a limited liability company (LLC). Ukrainian legislation allows the shareholders of such a joint venture to enter into a shareholders’ agreement, which regulates the rights and obligations of the shareholders. A shareholders’ agreement may be governed by foreign law if the shareholders’ agreement meets the requirements of the Ukrainian Law on Private International Law (e.g. if at least one of the parties to the shareholders’ agreement is a foreigner/foreign legal entity).

  In order to secure the obligations of the parties under the shareholders’ agreement, Ukrainian law provides for the possibility of granting irrevocable powers of attorney.

  1.1.4 Registration of a representative office (commercial and non-commercial)

  Day-to-day business in Ukraine can also be conducted via a representative office (RO). A RO is not a legal entity, but a branch of a foreign company registered in Ukraine. The head office of the subsidiary assumes all rights and obligations of the RO and is liable for its actions.

  An RO carrying out commercial activities in Ukraine is considered a commercial RO and becomes a permanent establishment of the foreign company in Ukraine for tax purposes. Consequently, if a double tax treaty exists between Ukraine and the country of tax residence of the foreign company, only the part of the company’s profits attributable to the RO will be taxed in Ukraine. An RO that performs preparatory or supporting activities is generally not considered a permanent establishment and is not subject to corporate income tax in Ukraine.

  Due to legislative changes introduced in 2024, an RO can be registered according to similar procedures as legal entities in Ukraine (including through private notaries) with state registration in the USR. Documents for registration of an RO with the state can only be submitted by a certain list of persons, including lawyers.

  1.1.5 Registration of a Ukrainian subsidiary

  A foreign company may decide to establish a Ukrainian subsidiary in order to do business in Ukraine.

  A Ukrainian subsidiary controlled by foreign companies or nationals generally enjoys the same legal treatment as legal entities without foreign participation. For example, while foreign companies are not permitted to own agricultural land in Ukraine or to acquire land or state property, foreign companies with a Ukrainian subsidiary can make such purchases.

  The Ukrainian subsidiary may engage in any commercial activity, enter into legal obligations, acquire property and sue and be sued in its own name. It may (within certain restrictions and limitations) engage in any commercial activity provided for in its articles of association or partnership agreement. However, licenses and permits or other approvals may be required for some activities.